The iShares Gold ETF (IAU) Explained
Welcome back! If you’ve ever thought about adding gold to your portfolio but didn’t want to deal with buying, storing, or insuring physical bars, the iShares Gold Trust (IAU) might be your golden ticket.
🪙 What Is IAU?
The iShares Gold Trust (ticker: IAU) is an exchange‑traded product that gives you direct exposure to the price of gold — without you having to physically own it.
• Launched: 2005 by BlackRock
• Assets under management: Over $47 billion
• Expense ratio: 0.25%
• Structure: Holds physical gold bullion in secure vaults
• Trading: Listed on the NYSE Arca, trades like a stock
Each share represents a fractional ownership in the trust’s gold holdings. That means when gold prices move, IAU’s price moves almost in lockstep.
📈 Why Investors Buy Gold
Gold has been a store of value for thousands of years. In modern portfolios, it’s often used for:
• Inflation hedge: Gold tends to hold its value when the cost of living rises.
• Safe haven: During market turbulence or geopolitical uncertainty, investors often flock to gold.
• Dollar hedge: Gold prices often move inversely to the U.S. dollar — when the dollar weakens, gold can strengthen.
• Diversification: Gold’s price movements don’t always match stocks or bonds, which can smooth portfolio volatility.
💡 Why Choose IAU Over Physical Gold
Buying physical gold means dealing with storage, insurance, and liquidity issues. IAU solves these problems:
• Low cost: At 0.25% annually, it’s cheaper than many gold ETFs like GLD (0.40%).
• Liquidity: You can buy or sell shares instantly during market hours.
• No storage worries: The gold is held in secure vaults and audited regularly.
• Lower share price: IAU’s share price is lower than GLD’s, making it more accessible for smaller investments.
📊 What Drives IAU’s Price
Since IAU tracks gold, its price is influenced by:
1. Real interest rates: Gold often rises when real rates are negative.
2. U.S. dollar strength: A weaker dollar can boost gold prices.
3. Inflation expectations: Higher inflation tends to support gold.
4. Geopolitical events: Wars, crises, and uncertainty can drive safe-haven demand.
5. Central bank buying: Countries like China, India, and Russia have been large gold buyers in recent years.
🛠 How to Use IAU in Your Portfolio
Here are three common strategies:
• Hedge: Allocate 5–10% of your portfolio to gold to protect against inflation and currency risk.
• Tactical trade: Buy during periods of expected dollar weakness or rising inflation.
• Diversifier: Use gold to reduce overall portfolio volatility.
📌 Pros and Cons of IAU
Pros
• Low expense ratio
• Easy to trade
• No physical storage needed
• Transparent holdings
• Strong track record
Cons
• No income (no dividends or interest)
• Gold can be volatile
• Long-term returns may lag stocks
• Tracking error possible (though minimal)
🧭 Final Thoughts
IAU is a simple, cost-effective way for retail investors to gain gold exposure. It’s not a magic bullet — gold won’t always go up — but as part of a diversified portfolio, it can help protect against inflation, currency swings, and market shocks.
If you’re looking for a low-cost, hassle-free gold investment, IAU deserves a spot on your watchlist. In our model, we use IAU as a diversifier and a shock absorber of sorts.
Tomorrow, we continue our series with a look at the US Dollar through our analysis of the Invesco DB US Dollar Bullish ETF (UUP). Until then, be well and stay safe!
